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Credit Suisse rethinks derivatives strategy

Credit Suisse has cut its bilateral derivatives trade count by more than half.

By Joe Parsons joe.parsons@strategic-i.com February 15, 2017 12:50 PM GMT

Credit Suisse has refocused its derivatives trading strategy with a large-scale reduction in bilaterally traded instruments, as it continues to radically reduce costs across its businesses.

The Swiss bank revealed in its fourth quarter earnings that it had reduced its bilateral derivatives trade count by 57% year-on-year to around 142,000.

The shift away from bilaterally traded derivatives, which have become more expensive to trade following tougher regulations, is part of Credit Suisse’s larger cost reduction scheme to reduce its riskier, capital-intensive assets.

“If we look at leverage exposure, we reduced the total by $67 billion, also 39%. A key contributor to this has clearly been the reduction in our external bilateral derivative trade count. We cut this by roughly 57%, eliminating 191,000 trades last year,” said David Mathers, chief financial officer, Credit Suisse in its earnings call.

The bank noted in the fourth quarter of last year that reductions in its riskier assets included the unwinding and compression of “macro derivatives and credit derivatives products.”

Throughout 2016 Credit Suisse made several moves to reduce its derivatives exposures.

At the beginning of last year, it transferred assets from its equity derivatives and prime services business into its “Strategic Resolution Unit” (SRU), a unit focused on the offloading of unwanted assets.

It then sold a portfolio consisting of 54,000 credit derivatives trades in the summer, reducing its leverage exposure by $5 billion. Reports suggested that Citi had bought the portfolio, which had a gross notional value of $380 billion.

The bank reported equity derivatives revenues declined year-on-year in the fourth quarter on lower volatility, however Mathers added: “a core focus for 2017 will be the strengthening of our solutions franchise, particularly in equity derivatives with increased collaboration with the IWM (International Wealth Management) division.